The Macron effect on EU supply chain risk

Emmanuel Macron’s resounding victory in the French presidential election has driven a fall in supply chain risk in France.

Western and Central Europe’s contribution to global supply chain risk fell to 29.94 in the second quarter of 2017, compared with 30.14 in Q1, according to the CIPS Risk Index, powered by Dun & Bradstreet.

Election success in France gives Macron power to progress with promised social reforms and the strengthening of France’s position in Europe.

After a rough period with Brexit, an unsettled migrant crisis and slow-economic growth, the election win brought much needed calm and stability across Europe. It also contributed to a fall in global supply chain risk, from 81.27 compared with 81.9 the previous quarter, out of a maximum possible 100.

The index scores risk based on socio-economic, physical trade and business continuity factors, weighted according to regions.

“Global supply chain risk continued to improve in Q2, driven by two main factors: a strengthening global economy with improved near-term forecasts and a decline in political risk over recent months, particularly in Europe,” said Bodhi Ganguli, lead economist at Dun & Bradstreet.

Donald Trump’s decision to withdraw the US from the Trans-Pacific Partnership earlier in the year allowed the EU to fill the gap and broker a trade deal with Japan. The deal aims to boost vehicle trade by aligning regulations and cutting out retesting. And Japan will eliminate or offer free-duty quotas on some cheeses from the EU.

John Glen, CIPS economist and director of the Centre for Customised Executive Development at The Cranfield School of Management said: “European economies are performing well, and the EU is capitalising on new opportunities for trade deals, as shown by the recent agreement with Japan. This is good news for supply chains in the Eurozone, but the threat of populism to the European project remains in the background.”

The outcome of elections in Austria in October, and in Italy by May 2018, where right-wing parties are keen to leave the EU, could disrupt supply chains.

In Italy, the EU’s third largest member, the Eurosceptic Five Star party has gained support. It promised to pull Italy out of the Euro and confidence in the currency is low. A Euro barometer survey at the turn of the year showed that support fell to 41%.

Calm before the storm

“Overall, the global economy is undergoing a period of change,” said Glen. “Although there appears to have been little movement in supply chain risk since last quarter, we could be experiencing the calm before the storm. The re-shaping of global trade, with Brexit and various, long-standing trade agreements such as NAFTA being negotiated, could disrupt supply chain integrity in the future.”

The positive developments in Western and Central Europe were counteracted slightly by an increase in risk in the Middle East and North Africa.

This is largely due to diplomatic and trade ties being severed between Qatar and Saudi Arabia, Bahrain, Egypt and UAE. This is limiting the flow of goods to and from Qatar, forcing it to re-route supply chains through Oman.

As a result, the Middle East and North Africa contributed 6.91% to global supply chain risk in Q2 2017, up from 6.87% in Q1.